López Obrador started his presidency 1 December.
From Wolf Street, Nov. 23:
Mexico is #1 silver producer in the world, #2 gold producer in Latin America, and a major copper producer.
For a president who hasn’t taken office yet and whose government is still in waiting, Mexico’s Andres Manual Lopez Obrador (AMLO) has managed to ruffle a lot of very important feathers. First, he scrapped the country’s most lucrative infrastructure project, a partly built airport for the capital that was expected to generate billions of dollars for many of the country’s richest companies, banks and families. Then, two weeks ago, his National Regeneration Movement (MORENA) party proposed a bill that directly threatens one of the banks’ core businesses: fee gouging. Since then, billions of dollars have been wiped off the banks’ market value.
Now, the same party, which, together with its allies, holds majorities in both houses of Congress, has set its sights on the activities of the mining industry. On Tuesday Senator Angelica Garcia presented a bill that would make significant changes to Mexico’s mining laws, including a proposal that would allow the country’s Energy Secretary to declare certain parts of the country off-limits for mining companies due to their negative social or environmental impact.
Shares in Grupo Mexico, the country’s largest mining company, responded to the news by slumping 5% on Tuesday, 2% on Wednesday and another 5% on Thursday, to hit a 2-1/2-year low of 39 pesos. Shares in the company’s biggest domestic competitor, Penoles, have shed 13% over the last three days, and are now at their lowest level since April 2016.
Two analysts consulted by Reuters said the losses were fueled by concerns about the potential impact of the bill, if it is approved. The section of the bill that most worries investors is a clause that would require the consent of indigenous communities before granting mining concessions on their land — something that’s supposed to already happen in Mexico as a matter of course.
Almost 30 years ago, the Mexican government signed an International Labor Organization convention in which it committed to consult indigenous peoples on development projects that could affect them. But until today local laws only oblige the government to carry out such consultations for energy projects, and even then the pressure exerted by on indigenous communities to give up their land for energy pipelines or fracking wells can be unbearable.
It’s not just domestic mining firms that will be watching developments closely. Mexico is the world’s largest producer of silver and the second largest gold producer in Latin America, after Peru. It also produces 5% of the world’s copper and is the fifth largest lead producer.
This year Mexico is on track to reach a four-year high in foreign direct investment in mining. But the risks in the sector are piling up. Foremost among them is the prospect of AMLO’s new government hiking taxes on mining operations. In September the incoming minister of economy Graciela Márquez Colín said that “mining companies should pay an extraction levy, which would be used to mitigate the sector’s externalities.”
The revenues Mexico collects from taxing the mining sector are tiny. In 2017 the amount was the equivalent of just 0.2% of GDP, half the average registered across Latin America and the Caribbean. This is despite the fact that Mexico is home to 20% of the region’s mining exports and 15% of its foreign direct investment (FDI), second only to Chile and Brazil, according to the Economic Commission for Latin America and the Caribbean (Cepal)....MORE
